January 29, 2013

What Online Sellers Need to Know about Sales Tax

This post is brought to you by Outright.com, the alternative to Mint for business. Sign up today and let us make your tax time less taxing!

There are
some concepts that make sense when you start up an online business, like the
products you’re making or the service you’re providing. You understand the
process of crafting a piece of jewelry or buying antiques to resell just fine.

Some things
with your business, though, probably seem easy before you actually try them.
For instance, sales tax seems like something that would be simple to figure out,
but may be totally baffling when you sit down to actually collect and remit it.
As a result, you may give up on it entirely – something you definitely
shouldn’t do.

Sales Tax 101

What’s up
with sales tax anyway? It’s money collected by your state and/or locality on
every sale so they can pay for things like roads, schools, and public safety. Sometimes
the percentage collected goes up, sometimes it goes down – but it’s almost
always there.

Etsy sellers
have to collect sales tax when making a sale in a state where they have
“nexus.” Nexus is a fancy term for “physical presence.” So if you work solely
out of New York state, then you only have to collect sales tax from buyers who
are also in New York state. But if you have a contractor or employee who lives
in another state, or drop ship out of a warehouse in another state, then you
also have nexus in that state and have to collect sales tax from buyers in that
state, too.

One of the
first things you should do with your online business is to actually register it
as a business! Even if you don’t think your business is actually that, if you
think it qualifies more as a hobby, you should still take the time to register.
Your state/county/city etc. may not consider your “hobby” as such when they
hear about it! New York state sellers
must register with the Department of Taxation and Finance. (If you’re in
another state, check here for how
to register for a sales tax license.)

Next, and
this might seem unrelated, you should open a business checking account. Many
business owners try to operate their business from their personal checking
account as they don’t want the hassle of separate accounts. However, this can
lead to a huge issue, especially if your little “hobby” takes off and you
suddenly have a ton of money to deal with.

Now that
you’re all set to collect, you have to know your local governments’ laws. City,
state, county – they all have different percentages they’ll want you to pay in,
and you have to know them all. Here’s a guide to setting
up sales tax collection on Etsy.

As for keeping track and remitting
sales tax to the state, if you didn’t hire an accountant, you’ll have to fill
out your state’s tax form to send it in. You’ll just make a simple payment
either monthly, quarterly, or annually, depending on what your state allows.

One tip: grab a free Outright account and let us track your sales tax for you! Outright Plus
accounts come with a sales tax calculator. If you have your Etsy or other
marketplace accounts integrated with Outright, the program’s Taxes tab will
show you just how much sales tax you’ve collected and how much you need to
remit to the state.

Sales tax is one of the many small
administrative hassles involved in selling on Etsy, but the more sales tax you’re
remitting, the more you’re selling. So try to keep the bright side in mind the
next time you tear tour hair out over filing a sales tax form!